Insurance contracts are written in a dialect that exists mostly to describe insurance contracts. These are the 47 terms that come up most often in an IUL conversation, defined the way we would explain them across a table — and flagged where the definition matters more than it looks like it should.

Showing all 47 terms

A – C

1035 Exchange: A tax-free transfer of cash value from one life insurance policy or annuity into another. Lets you move to a better-suited contract without triggering tax on the gain, though surrender charges on the old policy may still apply.
Accelerated Death Benefit Rider: A provision allowing you to draw part of the death benefit while living if you meet defined conditions, typically terminal or chronic illness.
Account Value: The gross value of your policy before any surrender charge is applied. Distinct from cash surrender value, which is what you would actually receive on exit.
Annual Point-to-Point: The most common crediting method. Compares the index value on your policy anniversary to its value one year earlier, ignoring everything that happened in between.
Annual Reset: The mechanic by which each crediting period starts fresh from wherever the index closed. Combined with a floor, it means a down year is never recovered from — it is simply skipped.
Cap Rate: The maximum crediting percentage for a period. Index gains above the cap are not credited.
Cash Surrender Value: What you would receive if you terminated the policy today: account value minus any surrender charge and any outstanding loan.
Contestability Period: Typically the first two years, during which the carrier may investigate and deny a claim for material misstatement on the application.
Corridor: The IRS-required minimum gap between cash value and death benefit. It narrows as you age, and it is why the death benefit sometimes rises automatically.
Cost Basis: Total premiums you have paid into the policy. Withdrawals up to basis are generally received tax-free.
Cost of Insurance (COI): The recurring charge for the death benefit, priced per thousand dollars of net amount at risk. Rises with age.
Crediting Strategy: The specific formula — index, term, cap, participation rate, spread — determining how your indexed account is credited.

D – I

Death Benefit Option A (Level): The death benefit stays at the face amount, so cash value growth shrinks the net amount at risk and reduces ongoing cost.
Death Benefit Option B (Increasing): The death benefit equals the face amount plus cash value. Costs more but permits higher premium under MEC limits during funding years.
Face Amount: The base death benefit stated in the contract, before any option B increase or rider addition.
Fixed Account: The non-indexed bucket inside the policy, crediting a declared interest rate. Often where loan collateral is held under a standard loan.
Floor Rate: The minimum crediting rate for a period, typically 0%. Protects against index-linked losses but not against policy charges.
Free Look Period: A window after delivery, usually 10 to 30 days depending on state, during which you may return the policy for a full refund.
Grace Period: The window after a policy has insufficient value to cover charges, during which you may pay to prevent lapse.
Guaranteed Elements: The contractual worst case: minimum crediting rate, maximum charges, maximum loan rate. The only part of an illustration the carrier is obligated to honor.
Illustrated Rate: The hypothetical crediting rate used to project non-guaranteed values. Subject to regulatory maximums and not a prediction.
In-Force Illustration: A projection generated from your policy’s actual current values rather than from original assumptions. Free on request and the core document of an annual review.
Indexed Account: The portion of cash value allocated to an index crediting strategy rather than the fixed account.
Indexed Universal Life (IUL): Permanent life insurance with flexible premiums where cash value is credited based on the movement of an index, subject to a floor and a cap, participation rate or spread.

L – P

Lapse: Termination of the policy for insufficient value to cover charges. A lapse with an outstanding loan can create a large taxable event.
Loan Interest Rate: The rate charged on policy loans. May be fixed and guaranteed for life, or adjustable, depending on the contract.
Modified Endowment Contract (MEC): A policy funded faster than IRS limits permit. Retains its death benefit but loses favorable distribution treatment: withdrawals become gain-first taxable and may carry a penalty before 59½.
Net Amount at Risk: Death benefit minus cash value — the carrier’s actual exposure, and the base on which cost of insurance is charged.
Overloan Protection Rider: A provision that freezes a heavily loaned policy to prevent lapse, guaranteeing a reduced death benefit and avoiding the tax event a lapse would trigger.
Paid-Up Additions: Small increments of fully paid insurance purchased with dividends or additional premium. Primarily a whole life feature.
Participating Loan: A loan under which the collateralized cash value continues receiving index credits. Creates positive arbitrage when crediting exceeds the loan rate and negative arbitrage when it does not.
Participation Rate: The percentage of the index move passed through before the cap is applied. A 60% participation rate on a 10% index year credits 6%.
Per-Thousand Charge: A monthly charge based on the death benefit, expressed per thousand dollars of face amount. Often limited to the first ten policy years.
Policy Fee: A flat monthly administrative charge that continues regardless of whether premium is being paid.
Policy Loan: Borrowing from the carrier using cash value as collateral. Not a taxable distribution under current law because the money never leaves the policy.
Premium Load: A percentage deducted from each premium payment before it reaches account value, covering premium tax and acquisition cost.

R – Z

Rate Class: Your underwriting classification — preferred, standard, substandard, tobacco — which sets your cost of insurance rates for the life of the policy.
Reduced Paid-Up: A non-forfeiture option converting the policy to a smaller, fully paid-up death benefit with no further premiums due.
Rider: An optional provision added to a policy for additional benefit, usually at additional cost.
Seven-Pay Test: The IRS test governing the first seven years of funding. Failing it makes the contract a MEC.
Spread: A flat percentage subtracted from the index return before crediting. The standard mechanism behind uncapped strategies. Also called a hurdle or threshold.
Surrender Charge: A declining penalty for terminating the policy in its early years, allowing the carrier to recover acquisition costs. Typically reaches zero in 10 to 15 years.
Target Premium: The carrier’s reference premium level, used primarily to calculate agent compensation. Not a measure of what the policy needs to perform.
Term Rider: Term insurance attached to a permanent policy. Used in accumulation designs to raise the death benefit enough to permit more premium at lower cost than base coverage.
Volatility-Controlled Index: A proprietary index targeting a fixed volatility level by shifting between equity and cash or bonds. Cheaper to hedge, which supports higher participation rates, but dampens upside and may carry internal fees.
Wash Loan: A loan where the interest charged and the crediting on collateral are equal or nearly so, producing roughly zero net borrowing cost.
Withdrawal (Partial Surrender): Permanently removing money from the policy. Tax-free up to cost basis, taxable beyond it, and it permanently reduces the death benefit.

Still stuck on a term you saw in a contract or on an illustration? Send it to us and we’ll explain it in plain language, whether or not you are a client.

The Plain-English IUL Glossary

A – C

D – I

L – P

R – Z

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